FNSASOCT503A Provide Advice in Managed Investments

Diploma of Financial Planning FNS50610

FNSASOCT503A Provide Advice in Managed Investments

:
LEARNER GUIDE

FACILITATOR’S DETAILS

The facilitator for this course is: TBA Michael Clay

Contact Details:

Address: TAFE NSW - Northern Sydney Institute

See Street, MEADOWBANK, NSW 2114, Australia

Email:

Table of Contents

Contents

Chapter 1 - Managed Funds an Introduction 7

Chapter 2 - Superannuation and Managed Funds 14

Chapter 3 - Types of Managed Funds 17

Chapter 4 - What are managed investment schemes? 18

Chapter 5 - General funds - (Source - asic.gov.au) 21

Chpater 6 - Other managed investment schemes 23

Chapter 7 - Mortgage Funds 26

Chapter 8 - Managed Fund Types 34

Chpater 9 - Platforms and Third Party Providers 36

Chapter 10 - Fees and Costs 38

Chapter 11 - Redeeming your Managed Funds 40

Chaper 12 - Types of Risks 42

Chapter 13 - Investing in Shares 43

Chapter 14 - Bonds and Other Investments 44

Chapter 15 - Direct Property Ownership 45

Chapter 16 - Borrowing to Invest 46

Chapter 18 - Regulation 55

Chapter 19 - Providing Financial Advice 79

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Chapter 1 - Managed Funds an Introduction 5

Chapter 2 - Superannuation and Managed Funds 12

Chapter 3 - Types of Managed Funds 15

Chapter 4 - What are managed investment schemes 16

Chapter 5 - General funds 19

Chpater 6 - Other managed investment schemes 21

Chapter 7 - Mortgage Funds 24

Chapter 8 - Managed Fund Types 32

Chpater 9 - Platforms and Third Party Providers 34

Chapter 10 - Fees and Costs 36

Chapter 11 - Redeeming your Managed Funds 38

Chaper 12 - Types of Risks 40

Chapter 13 - Investing in Shares 41

Chapter 14 - Bonds and Other Investments 42

Chapter 15 - Direct Property Ownership 43

Chapter 16 - Borrowing to Invest 44

Chapter 17 - Taxation 50

Chapter 18 - Regulation 53

Managed Funds in Australia

Chapter 1 - Managed Funds an Introduction

Financial planning requires an understanding of the financial concerns of your

Clients, the ability to understand and communicate investment risks and ascertain and work together to achieve the financial goals and personal objectives of a client.

Advising clients on strategy is what we aim to provide as advisers. Products that get the client to where they want to go is the vehicle in which they would like to travel. The recommended product such as investments, if necessary, is important in a client meeting their financial needs and objectives.

Investment is a means to an end; it is not the strategy nor is what you as an adviser have control over. Generally an investments purpose, for an individual, is to increase his or her wealth and secure their future by either gaining additional or maintain current income and/ or achieving increased capital value in their investment by the use of capital gain.

To enable you to advise clients appropriately, it is important that you understand the implications of the investment plan chosen—that is, its level of volatility and the potential for loss. The possibility of return and the comfort level of the client with the investments.

As an adviser you need to provide the opportunity of a review not of just asset allocation but of the person being incline with their ongoing investment strategy. The assessment of cash flow and assets and liabilities in line with taxation and any Centrelink implications. This is not exhaustive however it is important that a review is not about assets allocation and which funds your money is invested in, it is about the person not the product.

Managed funds are services through which many investors may pool their funds, using specialists to handle the daily investment decisions and management as well as administration.

Further Reading -

Austrade

Pages 1 - Managed Funds an Introduction

Other fund Management products

Fund Managers

Financial Planning in Australia

Chapter 8

Page 270 Introduction

What is a Managed Fund

The concept of the unit trust has its origins in England. A system was developed to satisfy the needs of minors that had been left money, however due to their age, they held no independent legal means to use the funds left to them. The unit trust was put in place to assist the child when a person died. The unit trust is a legal arrangement providing the deceased to rule from the grave so that funds can be used to benefit a minor. This was achieved by setting the funds left for a child to be put in the hands of a trustee (the legal owner), these funds were then to be used for an on behalf of the beneficiary (the beneficial owner) and until the child came of age.

This legal form was eventually put to use for investors (the beneficial owners), who gave money to a trustee. The trustee then in turn invested money employing the expertise of a fund manager. The unit trust concept was introduced to Australia in 1936, but not until some 50 years later did it become popular.

What is a Managed Fund (Cont.)

Trusts in Australia were structured as a three-way arrangement, with investors investing in the trust as beneficiaries, the manager managing the trust assets, and the trustee responsible for the assets being managed in accordance with the law and the trust deed. Under the Managed Investments Act 1998 (Cwlth), managed investments may now be run by a single responsible entity.

The Australian Securities and Investments Commission (ASIC) licenses the responsible entities.

The Corporations Act sets out some specific requirements for information to be included in prospectuses, which basically includes all information that investors and their advisers would reasonably expect to find in the prospectus, for the purpose of making an informed assessment. When there is a significant change in the information contained in a prospectus or a significant new matter arises, a supplementary prospectus must be issued.

Further Reading

Austrade

Page 3 Managed Funds In Australia

Size of the Market

Page 4 Characteristics of the market

Page 5 Anticipated Growth

Financial Planning in Australia

Page 270 Introduction

Managed investment or Products

Advisers may recommend from a wide variety of investment products that are classified as managed funds. Managed funds are in most cases unit trusts. As in the case of cash management trusts, the general public is also able to participate in the long-term fixed interest market through these managed investment products. Normally you would need significant funds and technology and an understanding of each market.

Portfolio managers seek to maximise the return to investors by an appropriate allocation of stocks to maximise returns while minimising the risk of loss. The returns to unit holders in these funds are normally variable, and depend on the expertise of the portfolio manager in anticipating future interest rate movements. Managed funds are usually a subsidiary of a merchant bank, stockbroker, trading bank, life insurance company or friendly society. The investor is merely a unit holder in the trust that ensures the fund managers comply with the trust deed. Costs are in the order of 0% to 5% per cent as a once-only up-front fee, and about 1 per cent is normally deducted annually as the manager’s commission. Sometimes special tax concessions apply to managed products offered by life insurance companies and friendly

societies, usually sold as life insurance or friendly society bonds.

Why invest in a managed fund?

Advantages

· Use of professional investment managers.

· Diversification across asset classes as well as diversification with an asset classes.

· Economies of scale and therefore access to investment opportunities not otherwise accessible to individual investors. EG large whole property. Domestic or Global fixed interest.

· Convenience of consolidated reporting.

· Taxation advantages in some cases (e.g. friendly society bonds, allocated

pensions).

· Regular income paid that may be compounded (reinvested) or paid to a nominated bank account.

Disadvantages

· Lack of personal control of the investment selection.

· Ongoing investment management fees as well as entry and exit fees which at times are significant.

· No control over personal taxation within the fund which is distributed

directly back to individuals each year.

· Locked into markets according to mandates of the fund.

· Possibility of the fund closing down and forced crystallisation of Capital Gains

· Possible suspension of outflows to members due to illiquidity of the fund

Why invest in a managed fund?

Readings

Financial Planning in Australia

Page 270 to 271 Why Invest in Managed Funds

Investment Diversification

Page 272 Managed Fund Pros and Cons

Page 289 Investing Using Managed Funds

Accumulation of Wealth

Storing and building value

The Funds Management Industry and Market

Readings

Austrade

Page 18 Assets under Management in Australia

Page 19 Fund Sources

Page 20 Asset Allocation

Page 21 Australian Fund Managers

Page 23 Australian Wholesale and Retail Assets under Management

Financial Planning in Australia

Page 272 Structure and Management

Chapter 2 - Superannuation and Managed Funds

Superannuation is a complex area of financial planning. The process of keeping up to date in Financial Planning and specific areas of expertise is an ongoing one.

Superannuation itself is not an investment, just as a company is not in itself a business. It is what happens inside the superannuation fund and a company that is relevant.

Superannuation funds can invest in many assets and be used to pay for life insurance and some salary continuance insurance's.

What is superannuation?

(A definition of) A superannuation fund (may be expressed as) is: -

“(a superannuation fund is) an indefinitely continuing fund set up solely to provide benefits to its members on retirement or (death benefits) to members’ dependants on death of the member. A superannuation fund is established by governing rules (a trust deed for the private sector) and an Act of parliament or Ordinance for a public sector fund) and is managed by Trustees.”[1]

What is superannuation? (Cont.)

In other words superannuation is a tax advantaged trust enabling people to save to build up their financial assets to be used at retirement. Superannuation, as a consequence of compulsory employer contributions, is the most common way individuals will save for their retirement.

The contributions within the specified legislated limits and investment earnings of a complying superannuation fund are concession ally taxed at maximum 15%. The rationale for providing tax concession to superannuation funds is to encourage individuals to contribute to a superannuation fund creating a “nest egg” that they can draw on in retirement.

Please refer to the following where indicated. Upon reference, please read each reference to understand each heading. You may have to use various resource material where indicated. As such you will have to use the links provided and utilise the Investment Book where indicated.

Types of Superannuation Funds In Australia

FNSASOCT503A Provide Advice in Managed Investments

Version 4 October 2011

Section 734 Meadowbank TAFE –NSI Page 50 of 80

§ Corporate funds

§ Industry funds

§ Public Sector funds

§ Small APRA funds

§ SMSF

§ Retail funds

§ RSA's

FNSASOCT503A Provide Advice in Managed Investments

Version 4 October 2011

Section 734 Meadowbank TAFE –NSI Page 50 of 80